Income from operations provides a better measure for determining whether a segment or department should be discontinued over contribution margin of the segment or department.

Question

Quizplus · Accepted Answer

Income from operations includes both variable and fixed costs, while contribution margin only considers variable costs. Contribution margin is more directly related to the decision to continue or discontinue a segment because it shows the incremental profit or loss that would result from such a decision, without being clouded by fixed costs that may not change if the segment is discontinued.

Income from Operations Provides a Better Measure for Determining Whether